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Macy's (M) Q1 Earnings in Focus: Factors Likely to Impact

Zacks Equity Research

Macy's, Inc. M is scheduled to report first-quarter fiscal 2019 results on May 15, before the opening bell. In the last reported quarter, this department store retailer delivered a positive earnings surprise of 3%. The company’s bottom-line has also outperformed the Zacks Consensus Estimate by average of 37.4% in the trailing four quarters.

How Are Estimates Faring?

The Zacks Consensus Estimate for the to-be-reported quarter is pegged at 36 cents, suggesting a decline of 25% from the year-ago quarter. We note that the Zacks Consensus Estimate has fallen by a penny in the past 30 days. The Zacks Consensus Estimate for revenues currently stands at $5,529 million, marginally down from the year-ago quarter. In the last reported quarter, the company’s net sales decreased 2.5%.

Factors at Play

In spite of taking a slew of measures, Macy’s continues to struggle with its top-line performance. Surely, the company is trying all means to adjust to rapidly changing retail landscape that has turned highly competitive with the increasing dominance of e-commerce players. This has compelled the company to strengthen digital ecosystem and bolster shipping and delivery capabilities.

While these endeavors support sales, they entail high costs. Additionally, any deleverage in SG&A rate, and increased marketing and other store-related expenses are concerns. Certainly, margins will remain one of the key areas to watch out.

Management had earlier guided gross margin to be down moderately in the first half. We note that gross margin shrunk 110 basis points to 37.5% during the final quarter of fiscal 2018 owing to lower merchandise margin on account of clearing the inventory.

Nonetheless, Macy's is focusing on price optimization, inventory management, merchandise planning and private label offering, and developing omni-channel capabilities and online order fulfillment centers.

The company had previously highlighted that going forward it will embark on Backstage, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, ‘mobile first’ strategy and Destination Businesses to drive growth. The company has also undertaken restructuring actions, which involves streamlining the upper management teams.

Macy's, Inc. Price, Consensus and EPS Surprise


Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. price-consensus-eps-surprise-chart | Macy's, Inc. Quote

What the Zacks Model Unveils

Our proven model does not conclusively show that Macy’s is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy’s has a Zacks Rank #4 (Sell) and an Earnings ESP of -4.23%, which makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Target TGT has an Earnings ESP of +0.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores ROST has an Earnings ESP of +0.77% and a Zacks Rank #2.

Costco COST has an Earnings ESP of +1.83% and a Zacks Rank #3.

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